Question: Consider two mutually exclusive R&D projects that ADM is considering. Assume the discount rate for ADM is 11 percent. Project A: Server CPU .13 micron
Consider two mutually exclusive R&D projects that ADM is considering. Assume the discount rate for ADM is 11 percent.
Project A: Server CPU .13 micron processing project. By shrinking the die size to .13 micron, ADM will be able to offer server CPU chips with lower power consumption and heat generation, meaning faster CPUs.
Project B: New telecom chip project. Entry into this industry will require introduction of a new chip for cell phones. The know-how will require a large amount of up-front capital, but success of the project will lead to large cash flows later on.
| Annual cash flows: | A | B |
| Year 0 | -775,000 | -987000 |
| Year 1 | 354000 | 260000 |
| Year 2 | 376000 | 381000 |
| Year 3 | 262000 | 374000 |
| Year 4 | 187000 | 425000 |
| Year 5 | 134000 | 512000 |
Complete the following table: (Do not round intermediate calculations. Enter the IRR as a percent. Round your profitability index (PI) answers to 3 decimal places (e.g., 32.161) and other answers to 2 decimal places (e.g., 32.16).)
| Project A | Project B | |
| NPV | ||
| IRR | ||
| PI |
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